DaimlerChrysler to Cut 8,500 Jobs in Germany to Revive Profit

[Marc]

From Bloomberg:

Sept. 28 (Bloomberg) -- DaimlerChrysler AG, the world's fifth- largest carmaker, will eliminate 8,500 jobs at Mercedes Car Group in Germany as part of an effort to revive profit.

The job cuts will cost 950 million euros ($1.14 billion) Stuttgart, Germany-based DaimlerChrysler said in a statement to the German stock exchange. The reduction will be achieved through voluntary termination agreements, the company said.

Mercedes faces slumping demand for the E-Class sedan, the model that contributes the most to profit. Mercedes reported its first quarterly loss in 13 years in the first quarter, and profit fell 98 percent in the second. The company is spending 1.2 billion euros ($1.44 billion) to reorganize the Smart small-car unit.

``Slimming down the workforce is just the first step,'' said Stephen Pope, head of equity research at Cantor Fitzgerald in London with a ``buy'' rating on DaimlerChrysler stock. ``The workers will have to raise productivity and the reliability of the models will have to improve.''

Dieter Zetsche, 52, left Chrysler on Sept. 1 for a four-month stint at Mercedes before he takes over as chief executive officer of the parent company. He eliminated 40,000 jobs from 2000 to 2004 to help Chrysler return to profit in the U.S.

Zetsche will take over at DaimlerChrysler when CEO Juergen Schrempp retires. In the first six months of this year, Chrysler had an operating profit of $963 million, and Mercedes reported a $1.1 billion loss.

Mercedes had 106,000 employees worldwide at the end of last year, including 93,000 in Germany, according to DaimlerChrysler.

DaimlerChrysler joins Volkswagen AG, Siemens AG and other German companies in cutting labor costs in their home market. Western German wage costs are the world's second-highest after Denmark, according to the IW economic institute in Cologne, Germany. German unemployment rose to a record 12 percent in March.

Earlier Agreement

Fourteen months ago, DaimlerChrysler reached an agreement with Mercedes workers in Germany to increase working hours, slow pay increases and save the carmaker about 500 million euros annually. In exchange, DaimlerChrysler agreed to not fire workers until 2012.

Mercedes in the first quarter was overtaken by Munich-based Bayerische Motoren Werke AG as the world's No. 1 maker of luxury cars. Zetsche replaced Eckhard Cordes, who had announced a plan to lower costs and improve quality. Zetsche said earlier this month Mercedes intends to regain leadership in luxury car sales.

Mercedes on March 31 announced its largest-ever recall, to fix electrical and brake failures in 1.3 million cars. In this year's annual survey of quality by J.D. Power & Associates of Westlake Village, California, Mercedes rose five spots to sixth best. It still ranks behind BMW and Toyota Motor Corp.'s Lexus.

VW Savings

Volkswagen, Europe's largest carmaker, said yesterday it will build a new compact sport-utility vehicle in Germany after reaching an agreement with workers that calls for longer hours and less pay. The deal with labor leaders makes it possible for the carmaker to build the vehicle at the main Wolfsburg, Germany, plant and still cut costs by 850 euros per vehicle, the minimum needed to make the vehicle profitable, Volkswagen said.

Volkswagen said Sept. 5 it needs to reduce its western German workforce of 103,000 by several thousand employees. The carmaker, bound by a labor agreement guaranteeing workers jobs through 2011, is now offering severance and early retirement packages in an effort to persuade employees to voluntarily leave the company.

Siemens, Europe's largest engineering company, said Sept. 19 it will eliminate 2,400 jobs at the German computer-services division and replace the unit's head as part of a plan to weed out unprofitable businesses and revive the stock.

General Motors Corp., the world's biggest automaker, is in the process of cutting 12,000 jobs in Europe, including 10,000 in Germany, to reduce its labor costs and be more competitive with Asian automakers such as Toyota Motor Corp., which are gaining European sales.

[Wes Bucey]

It's kind of depressing to think the road to profitability is paved with pink slips of employees instead of sales slips of more products.